Interim results as at 30 June 2011

8/17/2011 7:00

• The Carlsberg Group achieved 5% beer volume growth, net revenue growth of 8% while operating profit declined by 5% for the first six months of 2011 due to the Russian market performing below expectations in Q2. The Asian and Northern & Western European regions developed positively, in line with expectations.

• Despite an improved Russian macro economic environment, the Russian beer market declined by approximately 1% for the first six months (-2% in Q2). Over the past 18 months, consumer prices on beer have been increased by an average of 30% reflecting the duty increase. Russian consumers have not yet fully adjusted to these substantially higher price levels resulting in an extended period of declining consumption delaying the overall recovery of the Russian beer market. Furthermore, unfavourable weather conditions during the second quarter also impacted consumption negatively.

• The Group's Q2 Russian market share grew 20bp vs Q1 and reached 38.4% (source: Nielsen Retail Audit, Urban Russia). Volume share was up in the mainstream, premium and super premium segments and notwithstanding some share contraction in the large economy segment our value share increased by 50bp in the same period underpinning the objective to grow both volume and value market share. As a result of our price leadership in the industry, particularly over the past 18 months, as well as our deliberate focus on the higher value segments, our overall year-on year volume share declined. We intend maintaining our balanced approach to volume and value however we will selectively increase our emphasis on the economy segment.

• In April, the Group launched a new global positioning of the Carlsberg brand with the aim to capture the brand's full potential over the coming years. The new positioning has been well received and whilst still early in the process the initial brand performance indicators are encouraging.

• The beer markets in Northern & Western Europe grew slightly for the first six months. In Asia most beer markets reflected growth of mid- to high single-digit percentages. In Eastern Europe, the Ukrainian market continued to grow. In each of these geographies, we gained market share.

• The Group's beer volumes grew by 5% to 58.3m hl with 4% organic growth with large variations between regions. Northern & Western European volumes grew organically by 1% and Eastern Europe by 5%. Asia continued its strong growth and delivered 10% organic beer volume growth. Adjusting for the Russian destocking in Q1 2010, Group organic beer volume growth was an estimated 1%. Group organic beer volumes were flat in Q2.

• Price/mix increased by 4% with positive contribution from all regions. Simultaneously marketing investments also increased as per our plans as the Group embarked on several commercial initiatives across markets to support the Group's ambitions of growing both volume and value market shares.

• Operating profit was DKK 4,698m (DKK 4,966m in 2010) representing a 5% organic decline. Q2 operating profit was DKK 3,695m (DKK 4,239m in 2010). Organic decline was 11%. As expected, operating profit was impacted by higher input costs and sales and marketing investments across the Group. Eastern European operating profits were further impacted by higher logistics costs and the Russian market development being below expectations. The Asian and Northern & Western European regions delivered good organic operating profit growth in both Q1 and Q2.

• Net profit was DKK 2,228m compared to DKK 2,705m in 2010 (adjusted for the DKK 390m non-cash, non-taxable income in Q1 2010).

• The negative impact on volume from last year's unprecedented consumer price increases has been more persistent than anticipated and exacerbated by the poor weather in Russia in Q2. It is anticipated that the recently introduced regulatory changes will also have a marginal impact on the overall market development in Russia during the second half of this year. Consequently, the Group is now forecasting a low single-digit decline in the Russian market for 2011 (against previous growth expectation of 2-4%). As a result of this, the Carlsberg Group has revised its 2011 earnings expectations:

• Operating profit before special items is now expected to be around DKK 10bn compared to DKK 10.25bn in 2010 (previous expectation of high single digit percentage growth).

• Adjusted net profit growth is now expected to be 5-10% (previous expectation of more than 20% [1].

Commenting on the results, CEO Jørgen Buhl Rasmussen says: “Q2 performance in Russia has been below expectations. The recovery in the beer category is taking longer than we anticipated as the Russian consumer adapts to the exceptional price increases of around 30% undertaken during the last 18 months. This impacts negatively our Russian 2011 profits and is the driver behind our revised 2011 outlook. However, with the adjustments we're making to our local portfolio, channel approach and forward pricing strategy, I'm confident that our Russian business will return to growth. At the same time, I'm pleased with the performance of the rest of the Group. In the first six months we have continued our relentless focus on driving efficiencies as well as long-term sales value growth.”

[1]Reported 2010 adjusted for the DKK 598m non-cash, non-taxable income in special items related to a new acquisition accounting regulation.

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